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Jurisdictions typically do not have the necessary staff time nor <br />expertise to audit the financial records of the private companies <br />providing city services. The jurisdictions in San Mateo County <br />formed the SBTSA to coordinate and oversee the rate regulation <br />process. However, the SBTSA itself is not staffed to perform an <br />audit of the Company. Instead, they rely on independent auditors <br />to provide assurance that the financial records fairly represent <br />the operations of the <br /> companies. <br /> <br />An independent audit of the Company should provide the SBTSA <br />with: <br /> <br /> o An independent appraisal of the companies' accounting <br /> controls; <br /> <br /> o An assurance that proper accounting principles are being <br /> used; and <br /> <br /> o An assurance that the financial statements fairly present <br /> the results of the companies' operations. <br /> <br />Audit Scope <br /> <br />The audited financial statements serve as the base document of <br />the rate application. Statements of revenues and expenses and <br />other reports contained in the rate application should be <br />reconciled to the audited financial statements to provide <br />assurance that the company's activities are accounted for. <br />Because of their importance in the rate setting process, the <br />SBTSA and their consultants should take an active role in <br />determining the scope of the audit work to be performed. This <br />role is defined below. <br /> <br />The SBTSA and consultants should meet with the Company and its <br />auditors during the audit planning process. During this meeting, <br />the extent and type of testing should be discussed. Where appro- <br />priate and reasonable, detailed testing of transactions should be <br />performed on a statistical basis at a 90% confidence level or <br />greater. Statistical testing allows the auditor to project to <br />the population of transactions the economic impact of errors <br />discovered during the audit testing. In addition to the normal <br />audit testing, the auditors should review the allocations of <br />general expenses to ensure that they are performed in accordance <br />with the procedures set forth in Section V of this report. <br /> <br />The planning meeting should take place no later than June of each <br />year to allow sufficient time for the auditors to perform their <br />interim and year-end testing on a timely basis (see Exhibit III). <br /> <br /> 6 <br /> <br /> <br />